IMF says ECB rate cut “appropriate,” Fed should stay cautious
2024.06.06 12:01
By David Lawder
WASHINGTON (Reuters) -The International Monetary Fund said on Thursday that the European Central Bank’s rate cut is “appropriate” given declining inflation in the euro area, but that both ECB and Federal Reserve policy makers should maintain a data-dependent approach.
IMF spokesperson Julie Kozack also told a regular news briefing that the U.S. economy needs to slow in 2024 and the Fed should remain cautious in cutting rates.
The ECB on Thursday cut interest rates for the first time in five years, joining the central banks of Canada, Sweden and Switzerland in starting to unwind some of the steepest rate hikes used to tame a post-pandemic inflation surge. But it kept investors in the dark about its next move.
“Like in the U.S., we have seen significant progress in reducing inflation in Europe. We assess that ECB policy is appropriate,” Kozack said, adding that the IMF previously recommended ECB cuts starting in June.
“But it’s also important for the ECB to maintain its data dependent approach and its meeting by meeting approach,” she added.
Kozack said the U.S. economy has proven “remarkably resilient” in the face of tight monetary policy and economic shocks, with strong domestic demand despite slower first quarter GDP data.
“Inflation data for the first quarter has been overall higher than we would like to see in the US. And it’s a reminder that there are going to be bumps on the road as the US strives to bring inflation back to target,” Kozack said. “This also reinforces the need for the Fed to be cautious and data dependent on deciding policy in the in the coming months.”
